In 1865, Britain and Bhutan signed the Treaty of Sinchulu, under which Bhutan would receive an annual subsidy in exchange for ceding some border land to British India. Under British influence, a monarchy was set up in 1907; three years later, a treaty was signed whereby the British agreed not to interfere in Bhutanese internal affairs, and Bhutan allowed Britain to direct its foreign affairs. This role was assumed by independent India after 1947. Two years later, a formal Indo-Bhutanese accord returned to Bhutan the areas annexed by the British, formalized the annual subsidies the country received, and defined India's responsibilities in defense and foreign relations. In March 2005, King Jigme Singye WANGCHUCK unveiled the government's draft constitution - which introduced major democratic reforms - and pledged to hold a national referendum for its approval. In December 2006, the King abdicated the throne in favor of his son, Jigme Khesar Namgyel WANGCHUCK, in order to give him experience as head of state before the democratic transition. In early 2007, India and Bhutan renegotiated their treaty to allow Bhutan greater autonomy in conducting its foreign policy, although Thimphu continues to coordinate policy decisions in this area with New Delhi. Elections for seating the country's first parliament were completed in March 2008; the king ratified the country's first constitution in July 2008. The disposition of some 40,000 Bhutanese refugees - housed in two UN refugee camps in Nepal - remains unresolved.

bicameral Parliament consists of the non-partisan National Council (25 seats; 20 members elected by each of the 20 administrative districts (dzongkhags) for four-year terms and 5 members nominated by the King); and the National Assembly (47 seats; members nominated by the two parites and elected by direct, popular vote for five-year terms)